NCR CUP 1 ELIMINATION ROUND and CLINCHER

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING
ELIMINATION ROUND EASY QUESTION NO. 1
The premium on a three-year insurance policy expiring on December 31, 2019, was paid in total on January 1,
2017. The original payment was initially debited to a prepaid asset account. The appropriate journal entry has
been recorded on December 31, 2017. The balance in the prepaid asset account on December 31, 2017,
should be:
a. Zero.
b. The same as it would have been if the original payment had been debited initially to an expense account.
c. The same as the original payment.
d. Higher than if the original payment had been debited initially to an expense account.

It is proper to recognize revenue prior to the sale of merchandise when
I. The revenue will be reported as an installment sale.

II. The revenue will be reported under the cost recovery method.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.

Which of the following is not one of the criteria for revenue recognition for sales of goods under IFRS?
a. The significant risks and rewards of ownership of goods are transferred.

b. Payment has been received.
c. The entity does not retain either a continuing managerial involvement or control over the goods.
d. The costs incurred can be measured reliably.

Net income is understated if, in the first year, estimated salvage value is excluded from the
depreciation computation when using the
Straight-line method Production or use method

a. Yes No
b. Yes Yes
c. No No
d. No Yes
IFRS requires changes in accounting principles to be reported
a. On a prospective basis.
b. On a retrospective basis.
c. By restating the financial statements.
d. By a cumulative adjustment on the income statement.

In analyzing a company’s financial statements, which financial statement would a potential investor
primarily use to assess the company’s liquidity and financial flexibility?
a. Balance sheet.
b. Income statement.
c. Statement of retained earnings.
d. Statement of cash flows.

How should the following costs affect a retailer’s inventory?
Freight-in Interest on inventory loan

a. Increase No effect
b. Increase Increase
c. No effect Increase
d. No effect No effect

The following information pertained to Red Co. for the year:
Purchases ₱102,800
Purchase discounts 10,280
Freight in 15,420
Freight out 5,140
Beginning inventory 30,840
Ending inventory 20,560
How much should Red Co. report as cost of goods sold for the year?
On January 2, 2017, JKL Company sold equipment with a carrying amount of ₱480,000 in exchange for a
₱600,000 non-interest bearing note due January 2, 2020. There was no established exchange price for the
equipment. The prevailing rate of interest for a note of this type was 10%. The present value of 1 at 10% for
three periods is 0.7513.
What is the carrying value of the note receivable as of December 31, 2017 Statement of Financial
Position?

On December 1, 2016, AltiGo Co. purchased a ₱400,000 tract of land for a factory site. AltiGo razed an old
building on the property and sold the materials it salvaged from the demolition. AltiGo incurred additional costs
and realized salvage proceeds during December 2016 as follows:
Demolition of old building ₱50,000

Legal fees for purchase contract and recording ownership 10,000
Title guarantee insurance 12,000
Proceeds from sale of salvaged materials 8,000
In its December 31, 2016 balance sheet, AltiGo should report a balance in the land account of?

ELIMINATION ROUND AVERAGE QUESTION NO. 1
The following trial balance of Reese Corp. at December 31, 2017 has been properly adjusted except for the
income tax expense adjustment.
DEBIT CREDIT
Cash P975,000
Accounts Receivable – net 2,695,000
Inventory 2,085,000
Property, plant and equipment – net 7,366,000
Accounts payable and accrued liabilities P1,801,000
Income taxes payable 654,000
Deferred tax liability 85,000
Ordinary Share Capital 2,350,000
Ordinary Share Premium 3,680,000
Retained earnings, January 1, 2017 3,450,000
Net Sales & other revenues 13,460,000
Costs and expenses 11,180,000
Income tax expenses 1,179,000
P25,480,000 P25,480,000
Other financial data for the year ended December 31, 2017:
 Included in accounts receivable is P1,200,000 due from a customer and payable in quarterly
installments of P150,000. The last payment is due December 29, 2019.
 The balance in the Deferred Income Tax Liability account pertains to a temporary difference that
arose in a prior year, of which P20,000 is classified as a current liability.
 During the year, estimated tax payments of P525,000 were charged to income tax expense. The
current and future tax rate on all types of income is 30%.
In Reese’s December 31, 2017 balance sheet, how much is the final retained earnings balance?
On the December 31, 2017 balance sheet of Seattle Co., the current receivables consisted of the following:
Trade accounts receivable P60,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2017) 3,000
Selling price of unsold goods sent by Seattle on consignment at 26,000
130% of cost (not included in Seattle 's ending inventory)
Security deposit on lease of warehouse used for storing some 30,000
inventories
TOTAL P117,000
At December 31, 2017, the correct total of Seattle's current net receivables was?

Crab Corp.'s accounts payable at December 31, 2017, totaled P650,000 before any necessary year-end
adjustments relating to the following transactions:
 On December 27, 2017, Crab wrote and recorded checks to creditors totaling P350,000 causing
an overdraft of P100,000 in Crab's bank account at December 31, 2017. The checks were
mailed out on January 10, 2018.
 On December 28, 2017, Crab purchased and received goods for P150,000, terms 2/10, n/30.
Crab records purchases and accounts payable at net amounts. The invoice was recorded and
paid January 3, 2018.
 Goods shipped f.o.b. destination on December 20, 2017 from a vendor to Crab were received
January 2, 2018. The invoice cost was P65,000.
At December 31, 2017, what amount should Crab report as total accounts payable?

In March 2018, an explosion occurred at Winston Co.'s plant, causing damage to area properties. By May
2018, no claims had yet been asserted against Winston. However, Winston's management and legal counsel
concluded that it was reasonably possible that Winston would be held responsible for negligence, and that
P4,000,000 would be a reasonable estimate of the damages. Winston's P5,000,000 comprehensive public
liability policy contains a P400,000 deductible clause. In Winston's December 31, 2017 financial statements,
for which the auditor's fieldwork was completed in April 2018, how should this casualty be reported?
a. As a note disclosing a possible liability of P4,000,000

b. As an accrued liability of P400,000
c. As a note disclosing a possible liability of P400,000
d. No note disclosure of accrual is required for 2017 because the event occurred in 2018

On January 1, 2017, Davao Co. issued its 10% bonds in the face amount of P4,000,000, which mature on
January 1, 2027. The bonds were issued for P4,540,000 to yield 8%, resulting in bond premium of P540,000.
Davao uses the effective-interest method of amortizing bond premium. Interest is payable annually on
December 31. At December 31, 2017, Davao's adjusted unamortized bond premium should be?

Rochelle Co.'s prepaid insurance was P90,000 at December 31, 2018 and P45,000 at December 31, 2017.
Insurance expense was P31,000 for 2018 and P27,000 for 2017. What amount of cash disbursements for
insurance would be reported in Rochelle's 2018 net cash provided by operating activities presented on
a direct basis?

The following are examples of non-adjusting events after the reporting period that would generally
result in disclosure, except:
a. announcing a plan to discontinue an operation

b. abnormally large changes after the reporting period in asset prices or foreign exchange rates
c. commencing major litigation arising solely out of events that occurred after the reporting period
d. the destruction of a major production plant by a fire before the reporting period

Remeasurements of the net defined benefit liability (asset) comprise of the following, except:
a. actuarial gains and losses

b. the return on plan assets, excluding amounts included in net interest on the net defined benefit liability
(asset)
c. any change in the effect of the asset ceiling, excluding amounts included in net interest on the net
defined benefit liability (asset)
d. None of the above

The following are examples of contractual terms that result in contractual cash flows that are solely
payments of principal and interest on the principal amount outstanding, as defined in PFRS 9,
Financial Instruments, except:
a. A variable interest rate that consists of consideration for the time value of money, the credit risk
associated with the principal amount outstanding during a particular period of time and other basic
lending risks and costs, as well as a profit margin.
b. A conversion option wherein the instrument is convertible into fixed number of equity instruments of the
issuer.
c. A prepayment option wherein the prepayment amount substantially represents unpaid amounts of
principal and interest, which may include reasonable additional compensation for the early termination.
d. An extension option wherein the terms of the extension option result in contractual cash flows during
the extension period that are solely payments of principal and interest on the principal amount
outstanding, which may include reasonable additional compensation for the extension of the contract.
In assessing whether there is any indication that an asset may be impaired, an entity shall consider, as
a minimum, the following external sources of information:
a. observable indications that the asset’s value has declined during the period significantly more than
would be expected as a result of the passage of time or normal use.
b. the carrying amount of the net assets of the entity is more than its market capitalization
c. significant changes with an adverse effect on the entity have taken place during the period, in the
economic environment in which the entity operates
d. evidence is available of obsolescence or physical damage of an asset

ELIMINATION ROUND DIFFICULT QUESTION NO. 1
Conn Co. reported a retained earnings balance of P400,000 at December 31, year 1. In August, year 2, Conn
determined that insurance premiums of P60,000 for the three-year period beginning January 1, year 1, had
been paid and fully expensed in year 1. Conn has a 30% income tax rate. What amount should Conn report
as adjusted beginning retained earnings in its year 2 statement of retained earnings?

On January 2, year 2, Air, Inc. agreed to pay its former president P300,000 under a deferred compensation
arrangement. Air should have recorded this expense in year 1 but did not do so. Air’s reported income tax
expense would have been P70,000 lower in year 1 had it properly accrued this deferred compensation. In its
December 31, year 2 financial statements, Air should adjust the beginning balance of its retained
earnings by? (Indicate whether debit or credit)

On January 1, year 3, Roem Corp. changed its inventory method to FIFO from LIFO for both financial and
income tax reporting purposes. The change resulted in a P500,000 increase in the January 1, year 3 inventory,
which is the only change that could be calculated from the accounting records. Assume that the income tax
rate for all years is 30%. Retrospective application would result in
a. An increase in ending inventory in the year 2 balance sheet.

b. A decrease in ending inventory in the year 3 balance sheet.
c. A decrease in net income in year 2.
d. A gain from cumulative effect of change on the income statement in year 3

Which of the following is considered a direct effect of a change in accounting principle?
a. Deferred taxes.
b. Profit sharing.
c. Royalty payments.
d. None of the above.
Oak Co. offers a three-year warranty on its products. Oak previously estimated warranty costs to be 2% of
sales. Due to a technological advance in production at the beginning of year 3, Oak now believes 1% of sales
to be a better estimate of warranty costs. Warranty costs of P80,000 and P96,000 were reported in year 1 and
year 2, respectively. Sales for year 3 were P5,000,000. What amount should be presented in Oak’s year 3
financial statements as warranty expense?

On January 1, year 1, Brecon Co. installed cabinets to display its merchandise in customers’ stores. Brecon
expects to use these cabinets for five years. Brecon’s year 1 multistep income statement should include
a. One-fifth of the cabinet costs in cost of goods sold.

b. One-fifth of the cabinet costs in selling, general, and administrative expenses.
c. All of the cabinet costs in cost of goods sold.
d. All of the cabinet costs in selling, general, and administrative expenses.

A material loss should be presented separately as a component of income from continuing operations
when it is
a. An extraordinary item.
b. A discontinued component of the business.
c. Unusual in nature and infrequent in occurrence.
d. Not unusual in nature but infrequent in occurrence.

On November 1, year 2, management of Herron Corporation committed to a plan to dispose of Timms

Company, a major subsidiary. The disposal meets the requirements for classification as discontinued
operations. The carrying value of Timms Company was P8,000,000 and management estimated the fair value
less costs to sell to be P6,500,000. For year 2, Timms Company had a loss of P2,000,000. How much should
Herron Corporation present as loss from discontinued operations before the effect of taxes in its
income statement for year 2?

If (P2,450) net of tax is the reclassification adjustment included in other comprehensive income in the year the
securities are sold, what is the gain (loss) that is included in income from continuing operations before
income taxes? Assume a 30% tax rate.
When preparing a draft of its year 1 balance sheet, Mont, Inc. reported net assets totaling P875,000. Included
in the asset section of the balance sheet were the following: Treasury stock of Mont, Inc. at cost, which
approximates market value on December 31, P24,000. Idle machinery, 11,200. Cash surrender value of life
insurance on corporate executives, 13,700. Allowance for decline in market value of noncurrent equity
investments, 8,400.
At what amount should Mont’s net assets be reported in the December 31, year 1 balance sheet?

CLINCHER ROUND EASY QUESTION NO. 1
The original cost of an inventory item is below both replacement cost and net realizable value. The net
realizable value less normal profit margin is below the original cost. Under the lower of cost or market
method, the inventory item should be valued at
a. Replacement cost.
b. Net realizable value.
c. Net realizable value less normal profit margin.
d. Original cost.

Under IFRS which of the following is the definition of a “provision”?
a. A liability that is uncertain in timing or amount.

b. A liability that has definitely been incurred.
c. An asset that is uncertain as to its fair value.
d. An asset that is certain as to value.

On January 2, year 4, Paye Co. purchased Shef Co. at a cost that resulted in recognition of goodwill of
P200,000. During the first quarter of year 4, Paye spent an additional P80,000 on expenditures designed to
maintain goodwill. In its December 31, year 4 balance sheet, what amount should Paye report as goodwill?

CLINCHER ROUND AVERAGE QUESTION NO. 1
On January 2, year 1, Emme Co. sold equipment with a carrying amount of P480,000 in exchange for a
P600,000 noninterest-bearing note due January 2, year 4. There was no established exchange price for the
equipment. The prevailing rate of interest for a note of this type at January 2, year 1, was 10%. The present
value of P1 at 10% for three periods is 0.75. In Emme’s year 1 income statement, what amount should be
reported as interest income?
The market price of a bond issued at a discount is the present value of its principal amount at the market
(effective) rate of interest
a. Less the PV of all future interest payments at the market (effective) rate of interest
b. Less the PV of all future interest payments at the rate of interest stated on the bond
c. Plus the PV of all interest payments at the market (effective) rate of interest
d. Plus the PV of all future interest payments at the rate of interest stated on the bond

The following information pertains to Lee Corp.’s defined benefit pension plan for year 2:
Service cost, P160,000. Actual and expected gain on plan assets, 35,000. Unexpected loss on plan assets
related to a year 1 disposal of a subsidiary, 40,000. Amortization of unrecognized prior service cost, 5,000.
Annual interest on pension obligation, 50,000. What amount should Lee report as pension cost in its year
2 income statement?

CLINCHER ROUND DIFFICULT QUESTION NO. 1
On December 31, year 1, Lane, Inc. sold equipment to Noll, and simultaneously leased it back for twelve
years. Pertinent information at this date is as follows:
Sales price, P480,000. Carrying amount, 360,000. Estimated remaining economic life, 15 years. At December
31, year 1, how much should Lane report as deferred gain from the sale of the equipment?

On June 30, year 1, Ank Corp. prepaid a P19,000 premium on an annual insurance policy. The premium
payment was a tax deductible expense in Ank’s year 1 cash basis tax return. The accrual basis income
statement will report a P9,500 insurance expense in year 1 and year 2. Ank’s income tax rate is 30% in year 1
and 25% thereafter. In Ank’s December 31, year 1 balance sheet, what amount related to the insurance
should be reported as a deferred income tax liability?

On March 1, year 1, Rya Corp. issued 1,000 shares of its P20 par value common stock and 2,000 shares of its
P20 par value convertible preferred stock for a total of P80,000. At this date, Rya’s common stock was selling
for P36 per share, and the convertible preferred stock was selling for P27 per share. What amount of the
proceeds should be allocated to Rya’s convertible preferred stock?

NCR CUP 1 ELIMINATION ROUND and CLINCHER

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NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

ELIMINATION ROUND EASY QUESTION NO. 1

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

It is proper to recognize revenue prior to the sale of merchandise when

I. The revenue will be reported as an installment sale.

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

a. The significant risks and rewards of ownership of goods are transferred.

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

Straight-line method Production or use method

IFRS requires changes in accounting principles to be reported

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

How should the following costs affect a retailer’s inventory?

Freight-in Interest on inventory loan

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

The following information pertained to Red Co. for the year:

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

Demolition of old building ₱50,000

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

Trade accounts receivable P60,000

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

a. As a note disclosing a possible liability of P4,000,000

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

a. announcing a plan to discontinue an operation

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

a. actuarial gains and losses

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

a. An increase in ending inventory in the year 2 balance sheet.

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

Which of the following is considered a direct effect of a change in accounting principle?

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

a. One-fifth of the cabinet costs in cost of goods sold.

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

On November 1, year 2, management of Herron Corporation committed to a plan to dispose of Timms

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

Under IFRS which of the following is the definition of a “provision”?

a. A liability that is uncertain in timing or amount.

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

NCR CUP 1: FINANCIAL ACCOUNTING AND REPORTING

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